The demand for government bonds at the March 10 auction was ten times lower than expected. Although this method of investment, unlike saving in a bank or investing in shares, is considered reliable because it guarantees a return on investment
Interest in state bonds in dinars was so weak at the auction that the state managed to collect only 2,67 billion dinars, according to the report of the Public Debt Administration. The plan of the Ministry of Finance was to sell bonds at an auction with a total value of 20 billion dinars.
Government bonds are financial instruments issued by the government in order to raise funds for its needs - such as infrastructure financing, education, health or repayment of existing debts. When you buy a government bond, you are actually lending money to the government, which undertakes to pay you a pre-agreed interest rate in addition to the return of the principal investment. So, zand unlike saving in a bank or investing in shares, government bonds guarantee a return on investment, making them an ideal choice for those who want to preserve the value of their capital.
This was the first auction after the Moody's rating agency decided to lower the outlook for Serbia's credit rating from positive to stable, but also in the height of the crisis in the Middle East in an environment of sudden and high energy prices and increased uncertainty.
Although investor interest in government bonds was high for some time, and the state managed to achieve a slightly lower cost of borrowing, today's weak interest does not necessarily indicate that demand has cooled, Nenad Gujaničić, chief broker of Momentum Securities, tells Biznis.rs.
"It is possible that this has something to do with disturbances on the global market, so the banking sector was cautious, but it doesn't necessarily mean that. This is certainly a small sample to draw conclusions," Gujaničić said.
The largest part Serbia's public debt, which amounts to about 39,3 billion euros, is still in the hands of the owners of Eurobonds that the government sells on the international capital market. According to the data of the Public Debt Administration, the state's debt in Eurobonds amounts to 10,3 billion euros, in dinar bonds 7,3 billion euros, while bank loans reached 4,7 billion euros.
The performance of Serbian bonds so far in the last year was marked by solid demand. While at the beginning of last year yields on five-year bonds often exceeded five percent, stabilization of inflation and a better credit rating of the country enabled the Ministry of Finance to provide borrowing at lower rates and from the coupon of 4,5 percent.
The inability to borrow to a sufficient extent on the capital market will probably direct the state to new types of borrowing, primarily to banks and on less favorable terms than on the capital market.
During the last year, the state preferred to choose more flexible, but also more expensive, arrangements with banks, even though the price of Serbian debt on the international market recorded a slight decline, more precisely, the state could borrow more cheaply.
The share of the direct debt of the state to banks continued to grow and rose to 12 percent after the increase in borrowing on the basis of loans amounted to 807 million euros last year. Due to the increased liquidity of the domestic financial market, bonds denominated in euros on the domestic market recorded the second largest growth of 242 million euros.
Source: Biznis.rs/Vreme
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